The 5 Different Types of Blockchain Technology and Tokens, Examples for Each

Blockchain is a revolutionary technology that allows for secure, peer-to-peer transactions without the need for a central authority. Subsequently, transactions can be made quickly, cheaply, and without the risk of fraud. Blockchain will disrupt a wide range of industries, including finance, healthcare, and supply chain management. Blockchain technology is a digital ledger that records transactions across a network of computers. Tokens, on the other hand, are digital assets that may you can trade or use as a payment method within a particular blockchain network. Let’s look at all the different types of blockchain technology exploring their definition, characteristics, advantages, and disadvantages.

Understanding the different types of blockchain technology and tokens is crucial for anyone interested in benefitting from this innovative technology. We will explore the five different types of blockchain technology and tokens and also provide examples for each. Whether you are an investor, developer, or just want to know more about blockchain tech, we’ll provide you with a greater understanding.

Types of Blockchains

#1. Public Blockchains

These decentralized networks allow anybody to join and take part in the consensus process. They record transactions on a public ledger that is transparent and that anybody on the network can see.

Features

• Anyone can participate in the network
• Transactions are transparent and secure
• Decentralized governance
• Highly resistant to censorship

Examples

Bitcoin and Ethereum are two popular examples of public blockchains. Bitcoin is the first and most widely used blockchain. It focuses on peer-to-peer electronic money transactions. Ethereum, on the other hand, is a more adaptable blockchain that allows developers to create and deploy decentralized applications (dApps) on its network.

Advantages 

• High level of transparency and security
• Decentralized governance ensures no central authority controls the network
• Blockchains are great for free speech and media because no-one can censor them.

Disadvantages 

• Scalability issues may limit the number of transactions that it can process at once.
• Decision-making in governance can be slow and inefficient due to the need for consensus among all network participants.
• Lack of privacy can be a concern for some users because transactions are publicly visible on the blockchain.

#2. Private Blockchains

Private blockchains are different from public blockchains. This is because they are restricted to a specific group of users, organizations, or entities. Subsequently, private blockchains are mostly used by enterprise solutions or government projects that require high levels of security and privacy.

Features

We also know private blockchains as permissioned blockchains. They provide a more controlled environment than public blockchains. Only participants with authorization can join the network, read or write data and take part in the consensus process. Private blockchains use a different type of consensus process from public blockchains. The private blockchain is usually faster and more scalable.

Examples

The Hyperledger Fabric is an example of a popular private blockchain in use in enterprise solutions. It is an open-source blockchain platform that allows developers to build custom blockchain networks for specific use cases. Hyperledger Fabric uses a modular architecture. This allows organizations to customize the network for particular applications.

Another example is Corda. This is a private blockchain that is specifically made for enterprise use cases. It is a distributed ledger technology that allows businesses to transact directly with each other without middlemen or intermediaries. Corda uses a special one-of-a-kind consensus algorithm called the “Notary Service” to validate transactions and achieve consensus.

Advantages and Disadvantages 

A major advantage of private blockchains is the high level of control and customization that they offer. Organizations can customize the network to their specific needs and requirements. They can also ensure that only authorized participants have access to the network. Private blockchains are also faster and more scalable than public blockchains, making them more suitable for enterprise solutions.

A serious disadvantage of private blockchains is their lack of decentralization. Private blockchains rely on a centralized authority to manage the network. This makes them more vulnerable to attacks and manipulation. They are also not as transparent as public blockchains.

#3. Consortium Blockchains

Consortium blockchains are owned and run by a group of organizations. They are a hybrid between public and private blockchains. They offer more control and customization compared to public blockchains, but still have a decentralized structure.

Features

Consortium blockchains are permissioned networks that are run by a group of pre-determined entities. They can be businesses, organizations, or even governments. Consortium blockchains function like private blockchains. The fundamental difference is they are not restricted to a single organization. 

Examples

R3 Corda and Hyperledger are two consortium blockchains. R3 Corda is a blockchain platform built primarily for financial organizations. It enables secure, transparent, and efficient bank-to-bank transactions without the use of intermediaries. Hyperledger, on the other hand, is an open-source project aimed at developing enterprise-grade blockchain solutions for a variety of industries. These can be industries such as banking, healthcare, and supply chain management.

Advantages and Disadvantages 

One advantage of consortium blockchains is that they provide greater security and anonymity than public blockchains. They also provide more network control. This allows participants to tailor the blockchain for their own purposes. 

Consortium blockchains can be less decentralized than public blockchains. This is because they are owned and operated by a select group of entities. When all parties involved need to agree on any modifications to the blockchain, it can also result in slower decision-making processes. Setting up and running a consortium blockchain is also expensive and takes time.

#4. Hybrid Blockchains

Hybrid blockchains put together the advantages of private and public blockchains to provide increased flexibility and scalability while maintaining high levels of security. 

As the name implies, hybrid blockchains are a combination of private and public blockchains. They enable enterprises to reap the benefits of both forms of blockchain technology. Hybrid blockchains combine the transparency and decentralization of public blockchains with the privacy and control of private blockchains.

Examples

J.P. Morgan created the popular hybrid blockchain Quorum. It integrates elements of both public and private blockchains to provide a highly scalable and adaptable platform. Dragonchain is yet another hybrid blockchain. It has a number of features, including safe data storage, smart contract capability, and advanced consensus methods.

Advantages

Hybrid blockchains have several advantages. They enable organizations to maintain data control while benefiting from the openness and decentralization of public blockchains. Hybrid blockchains are also more scalable and have faster transaction times than public blockchains. Further, hybrid blockchains provide additional governance and security flexibility.

Disadvantages

The greater complexity of hybrid blockchains as compared to public or private blockchains is one of their key downsides. Hybrid blockchains demand greater resources to design and maintain, making them more expensive. Further, because hybrid blockchains require a combination of security mechanisms from both public and private blockchains, they can be much harder to secure. 

#5. Governance Blockchain

A governance blockchain is a type of blockchain meant to enable decision-making processes. Governance blockchains are made to help with decision-making processes by giving stakeholders a decentralized platform to vote on proposals. They enable the formation of decentralized autonomous organizations (DAOs) capable of making decisions together without the need for centralized authority.

Examples

An example of a governance blockchain is Tezos. It allows stakeholders to vote on proposals regarding the future development of the platform. Decred is another such example, which is a community-driven cryptocurrency that allows users to take part in the decision-making process.

Advantages and Disadvantages

Governance blockchains have many advantages. They give us a decentralized platform for decision-making. This increases transparency and reduces the risk of corruption. Governance blockchains also enable greater participation from stakeholders, leading to better decision-making.

A major disadvantage is the likelihood of governance attacks. These attacks happen when a group of stakeholders works together to take control of the decision-making process. It also complicated to create and run governance blockchains. This makes them more expensive than traditional centralized decision-making systems.

Types of Tokens

#1. Cryptocurrencies

Cryptocurrencies are digital or virtual tokens. They use cryptography to secure and verify transactions and to control the creation of new units. They are decentralized and function without a centralized authority. We can exchange cryptocurrencies for other currencies or assets or use them to purchase goods and services. Cryptocurrencies are decentralized, use cryptography, and are usually limited in supply. They also operate on a blockchain of some kind.

Examples

Bitcoin was the first cryptocurrency and is the most well-known. Litecoin and Ripple are two other examples. Each cryptocurrency has its own special features and best case in which to use it.

Advantages and Disadvantages

Some of the advantages of cryptocurrencies include fast, cheap transactions and their decentralized nature. They also have the potential to provide financial inclusivity to people who otherwise would not have that chance. Cryptocurrencies are also not tied to any specific country or currency and we can use them to send money anywhere.

One of the disadvantages of cryptocurrencies is their volatility. Their value can easily fluctuate very fast. They are also vulnerable to hacking and other security threats. Some people also associate crypto with illegal activities because of their relative anonymity.

#2. Utility Tokens

Utility tokens are a type of cryptocurrency that allows owners to access certain products or services on the blockchain network. Entities generate and distribute them through Initial Coin Offerings (ICO) or Initial Token Offerings (ITO). They do this so they can raise money for their blockchain projects. Utility tokens fuel transactions on their respective blockchain networks.

Examples

Ether (ETH) is the second-largest cryptocurrency by market value. It serves as the fuel for Ethereum blockchain transactions. Ether enables users to pay transaction fees and interact with the network’s smart contracts. It is also used to pay for (dApps) decentralized applications created on the Ethereum platform.

Basic Attention Token (BAT) is a utility token built on the Ethereum blockchain. It is used to reward users for viewing and engaging with ads. It is the native currency of the Brave browser. They reward users with BAT for viewing ads. Advertisers also use BAT to purchase ad space on the Brave browser.

Advantages and Disadvantages

One advantage of utility tokens is that they allow businesses to raise cash without giving up equity. They also provide a means for users to access products and services on a blockchain network. In addition, utility tokens are used to pay for transactions on the network.

One disadvantage is that they do not have any actual asset or government to back them, and their value depends on market demand. Another is that regulations are still being developed and laws are not yet in place everywhere regarding utility tokens.

#3. Security Tokens 

Security tokens are digital assets backed by real-world assets like stocks, bonds, or real estate. They represent ownership in a company. Their value is based on the underlying asset. They are usually regulated by securities laws and must follow Know Your Customer (KYC) and Anti-Money Laundering (AML) regulations. 

Securities laws regulate security tokens. This means they must be registered with regulatory bodies and follow strict reporting and compliance requirements. Additionally, security tokens often require investors to be accredited, which means they must meet certain income or net worth requirements.

Examples

tZero is a blockchain-based platform that allows investors to trade traditional securities in a digital format. The platform uses blockchain technology to streamline the issuance, trading, and settlement of security tokens. This makes it more secure and efficient for investors.

Polymath is a security token platform that offers a suite of features to issuers and investors, including KYC/AML compliance, investor accreditation verification, and token administration. They specifically designed the platform for security tokens, making it a more secure and compliant option for issuers and investors.

Advantages and Disadvantages 

A major advantage of security tokens is they give us the opportunity to own pieces of assets that would have been difficult to invest in otherwise. Subsequently, they make the trading and settlement of securities much more efficient and transparent. 

There are, however, some disadvantages. Security tokens may be costly and complex due to regulations. Their limited liquidity may also be a downside.

#4. Non-Fungible Tokens (NFTs) 

These are special one-of-a-kind digital assets that prove ownership of items like art, videos, and collectibles.

NFTs are non-fungible, meaning they cannot be replaced with another NFT. Each NFT has its own unique identifier and metadata stored on a blockchain, which allows for verification of authenticity and ownership.

Examples

CryptoKitties and NBA Top Shot are two examples of NFTs or non-fungible tokens. In fact, NFTs show you own anything from art to music to video game items.

Advantages and Disadvantages

They have the potential to revolutionize the way we think about ownership and authenticity of digital assets.

However, NFTs also have some potential drawbacks. One concern is their environmental impact. The process of creating and verifying an NFT requires a significant amount of energy, which can contribute to carbon emissions. Additionally, the value of NFTs can be volatile and subject to speculation, leading to concerns about bubbles and market crashes.

NFTs represent a new and exciting frontier in the world of blockchain technology, with the potential to revolutionize the way we think about digital ownership and authenticity. While there are certainly risks and challenges associated with NFTs, their unique characteristics and potential advantages make them a technology worth watching in the years to come.